Ace’s Greenberg Says Takeover Spree Beats Share Buybacks

Ace Ltd. Chief Executive Officer Evan Greenberg is highlighting a strategy that has increased Ace’s presence in Asia and Latin America while helping his company’s shares return 80 percent in the last five years. Source: Ace Ltd. via Bloomberg

April 11 (Bloomberg) -- Ace Ltd. investors are better off
because the insurer spent $4.6 billion on takeovers in the past
five years than they would have been if those funds were used to
buy back stock, Chief Executive Officer Evan Greenberg said.

The internal rate of return on the deals completed from
2008 to 2012 was 17 percent, compared with the 11 percent a
similar amount of share repurchases would have generated, he
wrote in his annual letter to shareholders posted yesterday on
the Zurich-based company’s website.

Greenberg, 58, is highlighting a strategy that has
increased Ace’s presence in Asia and Latin America while helping
his company’s shares return 80 percent in the last five years.
Rival property-casualty insurers Travelers Cos. and Chubb Corp.
have used buybacks more than Greenberg’s firm to boost returns
on their stock by about 100 percent in that period.

“We are not single-mindedly opposed to more-aggressive
capital management,” he wrote in the letter. “We treat it
seriously and review our position regularly. If we determine
that we cannot put our surplus capital to work productively over
a reasonable period of time, we will consider more-aggressive
strategies to return capital to our shareholders, and that
includes repurchasing our shares.”

Ace completed its purchase of Asuransi Jaya Proteksi PT in
Indonesia last year, making it the country’s seventh-largest
property-casualty insurer. In the fourth quarter, Greenberg
agreed to buy Mexico’s Fianzas Monterrey SA and ABA Seguros SA
for a combined $1.2 billion. The deals show how Ace uses capital
to boost its presence in “fast-growing countries of the world
with good long-term potential,” he wrote.

Large Democracies

“Both Indonesia and Mexico are large democracies that have
embraced a greater degree of market-oriented economic
principles, and both have significant natural resources and
young populations,” Greenberg said. “Over the next three, five
and 10 years, wealth creation in Indonesia and Mexico should be
strong with an emerging middle class and a growing large and
small business community.”

Mexico’s gross domestic product will expand by 3.6 percent
this year and Indonesia’s by 6.25 percent, according to the
average estimates of economists surveyed by Bloomberg. In the
U.S., where Ace gets the largest portion of its premium revenue,
the economy is projected to grow by 2 percent this year.

Greenberg, who said in his letter last year that businesses
faced a regulatory “assault” from the U.S., faulted the
government for failing to reach an accord on fixing the national
debt. President Barack Obama sent a $3.8 trillion budget to
Congress yesterday that calls for more tax revenue and slower
growth for Social Security benefits in a political gamble to
revive budget-deficit talks.

“While I think the deficit will ultimately get addressed,
I fear it will happen in a very inefficient and wrong-headed
way,” Greenberg wrote. “Until the country solves its fiscal
problem and targets support toward areas that improve
competitiveness, the U.S. economy will continue to underperform,
unemployment will remain relatively high and continued financial
market volatility will remain a possibility.”